There’s plenty of anger at major oil companies right now, especially in Congress. But does acting on that anger make for smart energy policy? Will it lead to the kind of measures likely to bring down high pump prices? The answer is a clear no, and in fact there’s a strong track record showing that Washington’s “stick it to big oil” instinct ends up hurting consumers instead.
Judging by the rough treatment given to oil industry executives by Chairman Ed Markey (D-MA) before the House Select Committee on Energy Independence and Global Warming on April 1, we can expect new rounds of punitive measures like de facto tax increases and price gouging legislation to be considered.
The problem is that these measures discourage domestic supplies and therefore raise prices. This was the lesson of the windfall profits tax imposed by President Carter in 1980. According to the Congressional Research Service, the tax “reduced domestic oil production from between 3 and 6 percent and increased oil imports from between 8 and 16 percent.” This is a lesson that should have been learned, but apparently has not been.
Ironically, Markey’s committee, when it isn’t scolding oil company executives in front of the television cameras, is busy trying to be part of the problem. It has expressed strong support for a number of measures to address climate change. These so called cap and trade measures will, by design, drive up the price of gas so that the American people are forced to use less. They would add to a host of legislation, like the restrictions on onshore and offshore oil production, that are part of the reason for high oil and gasoline costs. If anything, Congress should be angry at itself.